Cherokee International Corp. announced its financial results for the fourth quarter and year ended December 31, 2006. Net sales for the fourth quarter of 2006 were $37.6 million, up 15% compared to $32.7 million for the fourth quarter of 2005. Sequentially, net sales for the fourth quarter 2006 were up $4.5 million or 14% when compared to $33.1 million for the third quarter of 2006.
Net income for the fourth quarter of 2006 was $0.3 million, or $0.01 per diluted share, compared to net income of $0.1 million, or $0.00 per diluted share for the fourth quarter a year ago, and was up $1.7 million sequentially from a $1.4 million net loss or $0.07 per diluted share in the third quarter of 2006. Gross profit for the fourth quarter was $7.6 million, up 21% compared to $6.3 million for the same period in 2005, and up 19% sequentially from the third quarter of 2006. Our gross margin of 20.1% for the fourth quarter 2006 was up from the 19.2% realized in the fourth quarter of 2005 and also up sequentially from the 19.3% realized in the third quarter of 2006.
Operating expenses were $7.1 million for the fourth quarter 2006 compared to $6.0 million for the fourth quarter of 2005, and $7.3 million for the third quarter of 2006. As a percentage of sales, operating expenses were 18.8% compared to 18.2% in the same quarter of 2005 and 22.2% sequentially to the third quarter of 2006.
For the year ended December 31, 2006, net sales increased 19% to $145.0 million, compared to $122.1 million for 2005. The increase in net sales for the year was mainly due to a 25% increase in our datacom, a 12% increase in telecom and 18% increase in our industrial/medical markets. Net income for the year was $0.1 million, or $0.00 per diluted share, compared to net loss of $3.2 million, or $0.17 per diluted share, for 2005. Gross profit increased by approximately 23% or $5.7 million, to $30.6 million for the year when compared to $24.9 million for the year ended January 1, 2006. Gross margin for the year ended December 31, 2006 increased to 21.1%, up from 20.4% the prior year.
In the course of closing the 2006 financial year end, the company determined 2006 and prior periods contained several errors. These errors were subsequently researched and, as a result of this research, were determined to be immaterial. In the analysis performed to correct these errors, SFAS 154 was applied and the "roll-over" method was used. The company implemented SAB 108 which permits the company to initially apply its provisions with adjustments to the opening balance sheet as of January 2, 2006, with an offsetting adjustment to retained earnings. As of December 31, 2006 and in accordance with U.S. GAAP, the company adopted SAB 108 and applied its provisions using the cumulative effect transition method in connection with the preparation of its annual financial statements for the year ended December 31, 2006.
